Companies & Sectors
L&T’s deteriorating margins and weaker execution a concern, says Nomura

Macroeconomic headwinds, longer execution cycle and poor margins are big hurdles that L&T needs to clear their huge order book backlog, which is a daunting task, according to the brokerage

Larsen & Toubro is going through a difficult phase, with margins and execution both weakening amidst difficult economic times and increased competition, according to Nomura Equity Research. The brokerage downgraded L&T’s target price to Rs921 from Rs997 while maintaining a ‘neutral’ stance.

 “We believe that L&T is among India's best players on infrastructure and the corporate capex cycle. However, an unfavourable macro environment and impediments to new orders driven by policy paralysis across sectors plague the medium-term growth and margin outlooks for the company. We are 5-6% lower than consensus on FY14/FY15 PAT estimates,” Nomura said in a research report.

The infrastructure sector has been riddled with execution problems for the last few years, particularly the power segment where orders have stalled and state electricity boards restructured. Hydrocarbons and heavy engineering were the key margin drags, while power dragged down revenue growth. Nomura believes that execution will be difficult and could drag revenues.

Nomura, “On our estimates (for L&T) to achieve revenue growth of 15%y-y (with revenue break up 80:20 –exports: imports), the execution rate on the domestic order book has to be close to 43%. We believe it will be difficult to achieve such high execution rate given 27% of L&T’s order book is from the B&F segment (primarily domestic) where execution cycle is higher.”

Even though order inflows for L&T have been strong this quarter. The order inflow during first quarter of the 2014 fiscal was pegged at Rs25,200 crore, while the total order book as of March 2013 was Rs1.65 lakh crore. Order book growth rate was pegged at 20% year-on-year, which is optimistic. Despite macroeconomic headwinds, Nomura expect L&T’s revenue growth will be driven by higher execution of domestic order book.

 Two key factors that affect L&T are longer execution times and poor margins. The company is less inclined to press ahead with projects if margins deteriorate. “A depleting book to bill ratio in exports and faltering revenue growth in domestic markets are a key concern area,” says Nomura .

According to Nomura, the company has retained its full-year guidance for order inflow and margins, but was cautious about the future citing difficult macro economic environment.

L&T shares closed 4% down at Rs867 on the BSE, while the 30-share Sensex too ended 1% down at 20,090.


Dabur Q1 net profit up 10% on strong sales in home care, shampoo segment
On back of strong growth across categories, Dabur, the fast moving consumer good company posted good numbers in June quarter despite high inflation and reduced discretionary spending
Dabur, which is part of Moneylife’s Stockletter pick, has posted a net profit of Rs130.89 crore for the quarter ended 30 June 2013 compared with Rs1,18.92 crore, up 10% while its total revenues, including sales increased to Rs1,126 crore from Rs1,017 crore same period a year ago. The positive results were driven by strong growth in key categories like hair care, oral care, foods, home care and skin care. We had recommended this stock at Rs153 and the share price is currently quoting at Rs175 on the Bombay Stock Exchange (BSE). 
According to Moneylife data, Dabur commands a premium valuation, with its market capitalisation quoting at a whopping 45 times its operating profit. Its return on net worth stood at an impressive 39%.
“Despite signs of an economic downturn and increased competitive intensity in the market, Dabur India  has reported strong volume growth in its key categories. Our domestic FMCG business grew at a strong 13.2%, driven by a volume growth of 9%. The business has performed well on all operating parameters. We have managed our business dynamically through a combination of calibrated price increases and greater focus on cost efficiencies. The macro-economic pressures notwithstanding, we remain on course to strengthen our brand portfolio and improve our competitiveness in the market place,” Dabur India Ltd chief executive officer Sunil Duggal said.
Dabur’s home care business grew by around 26%, while the foods business, led by packaged fruit juice brands Real and Real Activ, continued to report strong growth and ended the first quarter up 18.7%. The shampoo category continued to move forward on the strong growth trajectory and ended the quarter with a near 23% growth. This, coupled with the over 15% growth in our perfumed hair oil business, helped the hair care category report strong gains during the first quarter. The oral care category also performed well with the Toothpaste business reporting a 14% growth, while the digestives business grew by 15% and the skin care business reported a near 13% growth. Dabur’s retail business, under NewU, has also marked a turnaround with a substantial reduction in losses and the business has attained store-level profitability.
During the first quarter of 2013-14, Dabur launched a host of new products and variants across geographies, all of which have received encouraging response. In the domestic market, Dabur has launched India’s first drinking yoghurt under the brand Real Activ, besides a range of super-fruit juices under the brand Real Supafruits. The quarter also saw the launch of India’s first gel- based facial bleach under the brand OxyLife. In the overseas market, Dabur launched a range of hair care products – like hair mayonnaise, shampoos, conditioner, hair oils and hair colour crème -- under the brand Vatika, besides a range of Fem hair removal wax.
Dabur ended Wednesday 2.4% up at Rs174.95 on the BSE, while the 30-share index ended 1% down at 20,090. 


Sensex, Nifty uptrend broken: Wednesday closing report

If the Nifty manages to close above 6020, the uptrend may resume but looks like a downtrend has started

Sensex and the Nifty opened lower at 20,200 and 6,032. Yesterday we had mentioned that for the current up move to end, the Nifty should close below 6020. Today the index closed much below this level after hitting a five day low (including today). The NSE saw a volume of 56.02 crore shares, much higher than yesterday.


Late on Tuesday, the RBI took new steps to support the rupee to boost the local currency by tightening liquidity. The RBI lowered the overall limit for borrowing under the daily liquidity adjustment facility for each bank to 0.5% of deposits from 1%. The central bank also said banks now needed to maintain 99% of their daily cash reserve ratio requirements -- the deposits they must set aside -- with the RBI, compared with 70% now. The change takes effect from the two-weekly period starting July 27.


The indices tried to rise after the initial lows but quickly slipped within an hour to hit their respective lows after which they traded almost at the same level until making some recovery at the close of the session. The Sensex hit the high of 20,253 and 6,047 respectively. The lows hit were 19,994 and 5,963. Both the Sensex and the Nifty recorded their highest percentage loss after 3rd July 2013. The Sensex closed at 20,091 (fell 211 points, 1.04%) and the Nifty closed 5,991 (fell 87 points, 1.44%).


The broader indices too settled lower. The BSE Mid-cap index fell 1.82% and the BSE Small-cap index fell 1.42%.


BSE IT (up 1.03%) and BSE TECk (up 0.99%) were the only sectoral gainers while BSE Bankex (down 4.61%); BSE Consumer durables (down 3.13%); BSE Capital goods (down 2.98%); BSE Metal (down 2.09%) and BSE PSU (down 1.76%).


Out of the 30 stocks on the Sensex, 9 stocks settled higher. The main gainers were Bharti Airtel (up 2.18%); Wipro (up 2.02%); TCS (up 1.87%); Sun Pharma

(up 1.85%) and Cipla (up 1.68%). The main losers were Jindal Steel (down 3.99%); L&T (down 3.93%); ICICI Bank (down 3.73%); HDFC Bank (down 3.40%) and SBI (down 3.13%).


The top two A Group gainers on the BSE were—Idea Cellular (up 3.58%) and Dabur (up 2.40%).


The top two A Group losers on the BSE were—Wockhardt (down 20%) and Yes Bank (down 12.63%).


The top two B Group gainers on the BSE were—Modern Dairies (up 19.98%) and Patel Integrated Logistic (up 19.31%).


The top two B Group losers on the BSE were—Omnitech Info (down 19.96%) and Cerebra Integrated Technologies  (down 19.92%).


Of the 50 stocks on the Nifty, 12 ended in the in the green. The major gainers were Bharti Airtel (up 2.08%); TCS (up 1.90%); Sun Pharma (up 1.83%); Cipla (up 1.67%) and Bajaj Auto (up 1.39%). The key losers were IDFC (down 9.02%); IndusInd Bank (down 8.41%); Jaiprakash Associates (down 6.48%); Axis Bank (down 6.29%) and Kotak Bank (down 5.82%).


Asian indices had a mixed performance. Jakarta Composite fell the most 1.03% while the Straits Times gained the most, up 0.65%. US stocks ended mostly lower on Tuesday after a decline in a regional manufacturing gauge prompted concern, but the Dow Jones Industrial Average climbed to a record close.


China's manufacturing weakened further in July, signaling the worst of the nation's slowdown has yet to be reached, according to a preliminary survey of purchasing managers. The reading of 47.7 for an index released today by HSBC Holdings Plc and Markit Economics, was less than estimated and if confirmed in the final report Aug. 1, it would be the lowest in 11 months. Readings below 50 indicate contraction.


The signs of euro zone recovery contrasted with weaker Chinese PMI data. German and French PMI surveys both beat expectations. Overall, the business polls indicated that the euro zone economy was likely to grow in the current quarter. The European indices all traded in the green and the US Futures were also trading in the positive.


Tech Mahindra has signed an agreement with UBS Fund Services (Luxembourg) (UBS FSL) as the first client for its new platform, Tech Mahindra Managed Data Services (MDS).The said contract is for an initial five-year term. However, the company has not disclosed the financial details of the contract. Under the agreement Tech Mahindra will provide UBS FSL with a fully managed service across four major areas of data management, namely securities reference data, pricing, corporate actions and tax data. Tech Mahindra rose 2.53% to close at Rs1,209 on the NSE.


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